Why Hewlett-Packard Will Never Be Great Again

It was two years ago this week that Hewlett-Packard's (HPQ) world was turned upside-down.

Then-CEO Mark Hurd -- who had excelled at improving margins at the PC maker through shrewd cost-cutting and focusing on higher-margin businesses -- was unceremoniously dismissed after filing bogus expense reports.

Things got ugly quickly after Hurd was gone. An inept CEO took his place, and investors paid the price for HP's costly acquisitions and blowing more than $1 billion on its doomed webOS platform.

The once-proud tech giant has shed 58% of its value over the past two years, surrendering more than $50 billion in market value. This would normally be an opportune time for value investors to jump into the printing, computer, and software bellwether, but that's not the smart move at this time.

As bad as things may appear to be now, they can always get worse.

Downgrades When You're Down

UBS analyst Steve Milunovich initiated coverage of HP with a sell rating this week. The bleak rating and $16 price target were birthed by concerns that HP has become a jack-of-all-trades. In gunning for both the consumer and enterprise markets, HP is not gaining traction in either camp.

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Just as we've seen router rooter Cisco (CSCO) falter by trying too hard to matter in the consumer market, HP finds itself battling two losing battles.

It also doesn't help that PC sales have been stagnant for two years and that even the company's flagship printing business seems out of date in these dot-com times where even event ticketing and coupons have gone digital to save on paper and printing costs.

The Numbers Aren't Smiling

Analysts see revenue slipping 3% to $122.9 billion, and that's the good news. Those same pros see profitability sliding 17% to $4.07 a share. Wall Street sees marginal improvement next fiscal year, but even those marks are well off what HP cranked out a year ago.

This should be a great time for HP. Microsoft's (MSFT) about to roll out Windows 8 in a handful of weeks, and logic would dictate that it's the ideal time for PC and laptop owners to upgrade their computers.

You also have new CEO Meg Whitman at the helm. She watched over eBay's (EBAY) heady growth for years. She should be able to work the same magic at HP, and even the skeptical Milunovich is a fan of Whitman's centralizing strategy, sales, and marketing. He just fears that it will take years for Whitman to work her magic -- and we don't know if HP has that kind of time.

The 'Good Enough' Revolution Is for Real

HP is still the world's largest PC company. Industry tracker Gartner claims that HP shipped roughly 13 million PCs during this calendar year's second quarter, but that's a 12% decline from the 14.8 million units that it moved a year earlier.

HP's global market share is down to 14.9%.

Shrinking market share in a growing pie is reasonably acceptable, but this pie is outright endangered. Smartphones and tablets are the way that many people are choosing to perform rudimentary computing tasks these days, and that's bad news for HP. It has flopped badly in recent attempts to matter on those fronts.

Acquiring Palm to nab the once-revolutionary webOS operating system was supposed to make HP relevant, but it was the wrong deal at the wrong time. HP's revival of Palm devices and its proprietary webOS tablet was short-lived.

It's too late now. Android and iOS devices have run away with the market.

Even its own partners are turning on HP. Microsoft's decision to put out its own Windows-fueled Surface tablets will make it harder for traditional box makers HP and Dell (DELL) to stand out.

HP can lament that folks sharing snapshots on social-networking websites don't need to print out photographs anymore or that an iPad does the basic surfing, gaming, and streaming that consumers used to rely on PCs for in the past.

It doesn't matter. HP's glory days are in the past.

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Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Cisco Systems, Microsoft, and Apple. Motley Fool newsletter services have recommended buying shares of eBay, Apple, and Microsoft. Motley Fool newsletter services have recommended creating a bull call spread positions in Apple and Microsoft.